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Fraud Claim Adds $350K to Plaintiff's Recovery in Major Commercial Breach-of-Contract Case

Posted by Steve Silver on Jul 1, 2015 6:51:00 PM


A plaintiff normally cannot recover damages for fraud in a breach of contract action, but, in a recent major commercial case, a successful plaintiff was able to add nearly $350,000 to its eventual recovery by successfully adding and proving a fraud count to its original complaint, based on information the defendant revealed for the first time during discovery. Nebo Ventures, LLC v. NovaPro Risk Solutions, LP (Fulton County Sup. Ct., (2012CV202767).

The litigation in this case arose out of a contract the City of Atlanta awarded to NovaPro’s predecessor, Ward North America, to administer the City’s workers compensation and other benefit claims. Nebo’s owner, Kevin Miles, aided Ward in preparing its successful bid to the City, and, under the terms of its own contract with Ward, Nebo was then entitled to receive 5% of the adjusted gross revenue Ward received from the City.

Click Here FREE Georgia Trial Video Samples Nebo’s fraud claim was based on a $1+ million performance bonus Ward received from the City in 2005 and 2006. Under the terms of its contract, Nebo should have entitled to receive 5% of those payments, but Ward officials never disclosed the payments to Miles. In 2011, Nebo filed a breach of contract action in Fulton County Superior Court against NovaPro for its alleged failure to pay other monies owed. During the course of discovery, NovaPro revealed to Nebo for the first time its receipt of the performance bonus. Nebo then amended its complaint to add a fraud count based on the concealment of the performance bonus.

The trial court granted summary judgment to NovaPro on the fraud claim, because Nebo had a right under the contract to conduct an audit of NovaPro’s records and failed to do so. Assuming that NovaPro had misrepresented to Nebo that no bonus had been paid, the trial court held as a matter of law that Nebo’s reliance on the misrepresentation was not justifiable.

Nebo appealed the ruling, and the Court of Appeals reversed in Nebo Ventures, LLC v. NovaPro Risk Solutions, L.P., 324 Ga App. 836 (2013). The Court of Appeals held that the standard for justifiable reliance in a fraud case is whether a party exercises due diligence. However, the Court also said that the question of whether a party exercises due diligence is normally one for the jury’s determination.

The Court of Appeals noted that the case did not involve a real estate or similar transaction that required a higher level of diligence. The Court then reviewed Kevin Miles’s deposition in which he stated that he wanted to avoid being placed “in a combative relationship when you start basically not believing your client,” and that “once you start auditing, it's a big to-do. The Court continued that due diligence did not require Miles to “exhaust all means at his command to ascertain the truth.”

The Court of Appeals concluded, “We cannot say as a matter of law that reasonable diligence required that, in response to [NovaPro’s] representation as to the nonpayment of the performance bonuses, Nebo protect its interests by auditing NovaPro.” The Court went on to give Nebo some guidance for establishing due diligence at trial. “A jury might also conclude that NovaPro was actively attempting to conceal the payment of bonuses and that further inquiry by Nebo would not have provided information about their payment.”

During the trial, Nebo’s attorney Matt Martin adopted a somewhat unusual strategy by calling as a witness a former attorney with his law firm, Bruce Brown, who had conducted the discovery on the case. Brown testified as to the various interrogatories and document requests made by Nebo in the case and to NovaPro’s sworn responses that indicated that no bonus payments had been made by the City of Atlanta. Brown also testified that he received no information about bonuses in any depositions conducted before May 2012. Brown added that he had scheduled a deposition with NovaPro’s former controller, Antoinette Turbyfill, in early May, to discuss NovaPro’s financial records. Brown also stated that NovaPro’s attorney first told him about the performance bonus two days before Turbyfill’s deposition.

Antoinette Turbyfill testified for the defense by a subsequent video deposition (conducted in November 2012). She explained her reasons for not including any mention of the performance bonus in the documents provided to Nebo during discovery. She said that the initial request received was for “moneys received from the City and … I didn’t think that the performance bonus should be included, I didn’t think that it qualified. Kind of like when you get a salary … you get $50,000 a year, you don’t count the $5,000 bonus that you got.” She denied trying to conceal or lie about the bonus and added that when she learned that when the bonus should be included, she made the information available.

On cross examination, however, Turbyfill said that, prior to the lawsuit being filed, she saw an e-mail from NovaPro’s CFO Ken Perilli, in which he made an estimate of the amount of money owed Nebo under its contract and that the estimate did not include the performance bonus. Further, she admitted that she deleted the $1 million performance bonus line item from the discovery spreadsheets initially provided Nebo. She also said that Ken Perilli knew about the performance bonus.

In his closing statement, Matt Martin pointed out the various times that NovaPro’s officers, including Perilli, denied to Miles ever having received a bonus, including during the discovery process. He noted that it was only two days before Turbyfill’s first deposition that NovaPro reported receiving the bonuses. “Interestingly, [Bruce Brown] talked about the whole history of this litigation, he talked about the interrogatories that he served … and [the defense] didn’t ask him a single question. … [The interrogatories] are sworn testimony and look at those schedules … and there’s a line for performance bonus and guess what. Not a penny is reflected at any point from 2004 to 2011. You know why? Ms. Turbyfill told you. It was on there and she took it out.”

In his closing statement, NovaPro’s attorney James Standard never addressed the issue of NovaPro’s failure to reveal the performance bonus to Nebo. Instead, he noted that had Nebo requested an audit at any time, the audit would have revealed the omission of the performance bonus. “The unfortunate thing is how at any point in time, if Mr. Miles requested an audit before filing suit, none of us would be here. None of this would have happened… The parties could have figured it out and none of us would have been here. He had a contractual right to an audit, Ken Perilli invited him to do his audit… Mr. Miles didn’t do it… The parties avail themselves of their contractual rights under the contract, things get done and you don’t have these silly kind of lawsuits here.”

The jury found for Nebo on both its breach of contract and fraud claims. It awarded Nebo $492,104 on its breach of contract claim and an additional $102,224 in actual damages and $235,000 in general damages on its fraud claim.

CVN’s earlier reports on this case can be found here and here. Steve Silver can be reached at [email protected].

Topics: Fraud, Commercial Law, Georgia, Nebo Ventures v. NovaPro Risk Solutions